Brand new investor- Portfolio critique

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graphite01
Posts: 12
Joined: Fri May 12, 2017 6:42 pm

Brand new investor- Portfolio critique

Post by graphite01 » Wed Jan 03, 2018 6:58 pm

Hello everyone,
I have been reading through the forums for a little over a year now and would like some overall feedback regarding my portfolio. I am also seeking specific guidance regarding correctly re-allocating investments to tax efficient environments. Specifically, I hold several Roth and Traditional IRAs which currently hold cash as I am unsure as to what investment product is best for that account type (bonds, stocks, intl. stocks etc). I also believe I made a mistake in investing my 401k contributions in a variety of products instead of focusing on certain ones given their efficiency within a 401k tax deferred environment.

Thanks in advance for your comments!


Emergency funds: Have 6 months expenses in cash.
Debt: None
In the next 5 yrs we plan to purchase a home (not in CA) with money we have saved for the down payment (not included in the cash portion stated below).
Tax Filing Status: Married filing jointly
Tax Rate: 22% Federal, 9.3% State (marginal rates)
State of Residence: CA
Age: 30/31
Desired Asset allocation: 60% stocks / 40% bonds (open to suggestions)
Desired International allocation: 14% of stocks (open to suggestions)
Portfolio size: Mid six figures

Current retirement assets

Taxable
43.56% Cash
2.69% Vanguard Small-Cap Index Fund (VB) (.06%)

His 401k
2.76% American Europacific funds (RERGX) (.50%)
4.19% Fidelity growth (FDGRX) (.77%)
3.26% Alphabet Inc. Class A (GOOGL)
.88% Autodesk Inc. (ADSK)
.70% Adobe Systems Inc. (ADBE)
.49% Visa Inc. Cl A Shrs (V)
.41% SPDR S&P 500 ETF TRUST (SPY) (.09%)
.15% General Motors Corp Common shares (GM)
.32% Wells Fargo & Co (WFC)
.15% Intl business Machines Corp (IBM)
.33% Fidelity Biotechnology Portfolio (FBIOX) (.75%)
2.16% Vanguard Growth ETF (VUG) (.06%)
4.67% Vanguard Value ETF (VTV) (.06%)
1.38% Vanguard Total Bond MKT (BND) (.05%)
1.44% Vanguard Short term Bond (BSV) (.07%)
Company match 50% of first 6%

His Roth IRA
3.52% Vanguard High Dividend Yield ETF (VYM) (.08%)


Her 401K
3.02% Vanguard LifeStrategy Growth Inv (VASGX) (.15%)
No company match

Her Traditional IRA
6.56% IRA currently only holds cash

Her Roth IRA
.96% IRA currently only holds cash

Her Roth IRA
1.09% Currently in 5 yr CD

Her certificates of deposit
3.08% 5 yr CD
3.07% 5 yr CD
3.07% 5 yr CD
3.06% 5 yr CD
1.53% 5 yr CD
1.50% 5 yr CD

Contributions

New annual Contributions
Not sure what this refers to...Should I note my 401k contribution rate here?


Available funds

Funds available in his 401(k)
American Europacific Growth R6 RERGX (.50%)
Dodge & Cox International st DODFX (.64%)
Fidelity Growth Company Fd FDGRX (.77%)
Morgan Stanley Glbl Real Cl Is MGREX (.97%)
Principal Diversified Real Asst PTDRT (.74%)
T. Rowe Price Emerging Markets TEMET (1.0%)
The Oakmark Fund Investor OAKMX (.93%)
Vanguard Developed Mrkts Instl VTMNX (.06%)
Vanguard Employee Benefit Index VEBCT (.01%)
Vanguard Explorer Fund VEXRX (.34%)
Vanguard Extended Market Index VEMPX (.05%)
Vanguard Primecap Fund VPCCX (.46%)

Bond/fixed income
Vanguard Total Bond Mkt Index VBMPX (.03%)

Allocation funds
Fidelity balanced fund FBALX (.55%)
Vanguard trust Sel 2015 VTRS15 (.05%)
Vanguard trust Sel 2020 VTRS20 (.05%)
Vanguard trust Sel 2025 VTRS25 (.05%)
Vanguard trust Sel 2030 VTRS30 (.05%)
Vanguard trust Sel 2035 VTRS35 (.05%)
Vanguard trust Sel 2040 VTRS40 (.05%)
Vanguard trust Sel 2045 VTRS45 (.05%)
Vanguard trust Sel 2050 VTRS50 (.05%)
Vanguard trust Sel 2055 VTRS55 (.05%)
Vanguard trust Sel 2060 VTRS60 (.05%)
Vanguard trust Sel 2065 VTRS65 (.05%)
Vanguard trust Sel INC VTRS00 (.05%)
Self Directed Brokerage Option

Funds available in her 401(k)
Asset Allocation
Vanguard LifeStrategy Growth Inv VASGX
Stocks
Large Company
ClearBridge Large Cap Value I SAIFX (.58%)
Loomis Sayles Growth Y LSGRX (.66%)
Schwab 1000 Index SNXFX (.05%)
T. Rowe Price Dividend Growth PRDGX (.64%)

Small/Mid Co.
American Beacon Small Cp Val Inst AVFIX (.84%)
Carillon Eagle Mid Cap Growth R6 HRAUX (.72%)
Vanguard Small Cap Index Adm VSMAX (.06%)

Intl/Global
Oakmark International Investor OAKIX (1.00%)
Schwab International Index SWISX (.06%)

Bonds
Loomis Sayles Bond Instl LSBDX (.66%)
Vanguard Total Bond Market Index I VBTIX (.04%)

Capital Preservation
Vanguard Federal Money Market Investor VMFXX (.11%)


Questions:
1. Is holding a high dividend yield ETF in my Roth IRA a good idea? I was thinking since the dividends are reinvested that portion would grow tax free.
2. How should I go about making this portfolio tax efficient if I already have investments in my 401k? Should I sell certain stocks or funds in my 401k and then repurchase the tax efficient products with those proceeds? I would assume there may be some short term capital gains as a result.
3. Is it foolish to allocate a fund across multiple locations? For example if I already own VTV in my 401k but have cash to purchase more in my taxable account is that ok? I feel like it would be easier to have one fund in one location, but in this case I have cash that I would like to invest but I can only invest that into my taxable account.
Last edited by graphite01 on Wed Jan 03, 2018 8:43 pm, edited 2 times in total.

User avatar
David Jay
Posts: 5629
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Brand new investor- Portfolio critique

Post by David Jay » Wed Jan 03, 2018 8:39 pm

Welcome to the forum.

I will respond to #2:

There is no such thing as "tax efficiency" or "capital gains" inside a 401K. You do not need to concern yourself with any such issues inside a 401K (and tIRA). Buy, sell and exchange funds as you choose at any time. All money coming out of those accounts in retirement will be taxed as regular income.

This also means that you do not need to keep track of any of those annoying things you need to track in a taxable account: cost basis, tax lots, Loss harvesting, etc. Just throw money in and (after age 59.5) take it out as income.

[edit] It is the same with Roth accounts, except you do not show any income (or pay federal taxes) when you take out the funds.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Grt2bOutdoors
Posts: 19173
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Brand new investor- Portfolio critique

Post by Grt2bOutdoors » Wed Jan 03, 2018 9:59 pm

graphite01 wrote:
Wed Jan 03, 2018 6:58 pm
Hello everyone,
I have been reading through the forums for a little over a year now and would like some overall feedback regarding my portfolio. I am also seeking specific guidance regarding correctly re-allocating investments to tax efficient environments. Specifically, I hold several Roth and Traditional IRAs which currently hold cash as I am unsure as to what investment product is best for that account type (bonds, stocks, intl. stocks etc). I also believe I made a mistake in investing my 401k contributions in a variety of products instead of focusing on certain ones given their efficiency within a 401k tax deferred environment.

Thanks in advance for your comments!



Tax Filing Status: Married filing jointly
Tax Rate: 22% Federal, 9.3% State (marginal rates)
State of Residence: CA
Age: 30/31
Desired Asset allocation: 60% stocks / 40% bonds (open to suggestions)
Desired International allocation: 14% of stocks (open to suggestions)
Portfolio size: Mid six figures
Given your ages and time to retirement, your asset allocation is considered to be conservative, though acceptable. Other acceptable allocations are 70/30 or 80/20 on the more aggressive side. You have an investment horizon that could last 60-70 years (work years into retirement). Vanguard recommends holding at least 20-40% in international equities, I split the difference and used 30% allocation down below for your 401k.
Current retirement assets

Taxable
43.56% Cash
2.69% Vanguard Small-Cap Index Fund (VB) (.06%)

His 401k
2.76% American Europacific funds (RERGX) (.50%)
4.19% Fidelity growth (FDGRX) (.77%)
3.26% Alphabet Inc. Class A (GOOGL)
.88% Autodesk Inc. (ADSK)
.70% Adobe Systems Inc. (ADBE)
.49% Visa Inc. Cl A Shrs (V)
.41% SPDR S&P 500 ETF TRUST (SPY) (.09%)
.15% General Motors Corp Common shares (GM)
.32% Wells Fargo & Co (WFC)
.15% Intl business Machines Corp (IBM)
.33% Fidelity Biotechnology Portfolio (FBIOX) (.75%)
2.16% Vanguard Growth ETF (VUG) (.06%)
4.67% Vanguard Value ETF (VTV) (.06%)
1.38% Vanguard Total Bond MKT (BND) (.05%)
1.44% Vanguard Short term Bond (BSV) (.07%)
Company match 50% of first 6%
Recommend you divest/liquidate all individual equity holdings in 401K.
The reason why you should not hold individual equities is due to concentration risk -
you are essentially holding 7 lottery tickets, do you really want to bet your retirement money on GM? or Wells Fargo? Use low cost total market based indexes to capture your fair share of returns. Consider using these funds instead:

Vanguard Employee Benefit Index VEBCT (.01%) 30% --->this is an S&P 500 fund
Vanguard Extended Market Index VEMPX (.05%) 12% ----> represents mid/small caps
Vanguard Developed Mrkts Instl VTMNX (.06%) 18% -----> international equities
Vanguard Total Bond Mkt Index VBMPX (.03%) 40% ------> bonds

Or: you can simply select one of the low cost Vanguard Retirement Trust 20XX funds that most closely approximates the amount of equities/fixed income as noted in your desired asset allocation of 60/40.


His Roth IRA
3.52% Vanguard High Dividend Yield ETF (VYM) (.08%)
Any asset held in a ROTH IRA will grow tax-free. If you are holding VYM with the expectation that you will receive some added benefit because it's in a ROTH,
you won't. You will simply earn the returns of the fund, any withdrawals at retirement will be tax-free based on current law. You could choose to own the Total Stock Market Index in that account, the gains/earnings will still be tax-free.


Her 401K
3.02% Vanguard LifeStrategy Growth Inv (VASGX) (.15%)
No company match

Her Traditional IRA
6.56% IRA currently only holds cash
Do you/spouse have any intention for this money? What is the purpose of holding cash in an account that is designated for retirement? Cash earns nothing.
Her Roth IRA
.96% IRA currently only holds cash
Same question - purpose of holding cash?
Her Roth IRA
1.09% Currently in 5 yr CD

Her certificates of deposit
3.08% 5 yr CD
3.07% 5 yr CD
3.07% 5 yr CD
3.06% 5 yr CD
1.53% 5 yr CD
1.50% 5 yr CD

Contributions

New annual Contributions
Not sure what this refers to...Should I note my 401k contribution rate here?
Usually refers to a dollar figure - ex. $5,000.

Available funds
Funds available in her 401(k)
Asset Allocation
Vanguard LifeStrategy Growth Inv VASGX

Questions:

3. Is it foolish to allocate a fund across multiple locations? For example if I already own VTV in my 401k but have cash to purchase more in my taxable account is that ok? I feel like it would be easier to have one fund in one location, but in this case I have cash that I would like to invest but I can only invest that into my taxable account.
No, it's not foolish, however as noted above recommend you consolidate your retirement assets into broad based index funds or a target retirement fund which holds those same broad based index funds. Hold etf in taxable.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

graphite01
Posts: 12
Joined: Fri May 12, 2017 6:42 pm

Re: Brand new investor- Portfolio critique

Post by graphite01 » Thu Jan 04, 2018 11:45 am

David Jay wrote:
Wed Jan 03, 2018 8:39 pm
Welcome to the forum.

I will respond to #2:

There is no such thing as "tax efficiency" or "capital gains" inside a 401K. You do not need to concern yourself with any such issues inside a 401K (and tIRA). Buy, sell and exchange funds as you choose at any time. All money coming out of those accounts in retirement will be taxed as regular income.

This also means that you do not need to keep track of any of those annoying things you need to track in a taxable account: cost basis, tax lots, Loss harvesting, etc. Just throw money in and (after age 59.5) take it out as income.

[edit] It is the same with Roth accounts, except you do not show any income (or pay federal taxes) when you take out the funds.
Right. Thanks for pointing that out. I am still working to learn the ins and outs of how different account types function now and when withdrawals are taken in the future.

stan1
Posts: 5898
Joined: Mon Oct 08, 2007 4:35 pm

Re: Brand new investor- Portfolio critique

Post by stan1 » Thu Jan 04, 2018 12:15 pm

What you have is unnecessarily complex and may be conservative especially with your wife's accounts with appear to be almost exclusively in FDIC insured accounts. Is that her stated preference? In any case I'd manage the entirety as one portfolio across the multiple accounts. You have good low cost index choices in both 401Ks. I'd take advantage of those. I'd focus on total market funds (total stock market, total international stock market, and total bond market) or build them yourself using the funds you have available. You can replicate Total Stock Market in your 401K by using roughly 80% S&P 500 and 20% Extended Market. There's no reason to hold SPY with a 0.09% expense ratio when you have VEBCT available at a 0.01% expense ratio. Both are Index 500 funds.

Overall I'd be targeting an integrated portfolio across all your accounts something like this (anywhere between 60/40 and 80/20):
* 70% total market equities (2/3 domestic, 1/3 international). If you want a value or small value slant there's plenty of information on this site about those strategies.
* 30% fixed income (bonds, CDs)

You mentioned the cash you need within 5 years for relocation and a home purchase is being kept separate and I'd keep doing that. I'd have that money in FDIC insured CDs over 2% or "high yield" savings accounts which should be in the 1.3%-1.4% range right now (Ally, Marcus, etc.). Or you could some Vanguard CA Tax Exempt Money Market fund since you are in the 22% plus 9.3% CA tax rate.

graphite01
Posts: 12
Joined: Fri May 12, 2017 6:42 pm

Re: Brand new investor- Portfolio critique

Post by graphite01 » Thu Jan 04, 2018 1:31 pm

Grt2bOutdoors wrote:
Wed Jan 03, 2018 9:59 pm
graphite01 wrote:
Wed Jan 03, 2018 6:58 pm
Hello everyone,
I have been reading through the forums for a little over a year now and would like some overall feedback regarding my portfolio. I am also seeking specific guidance regarding correctly re-allocating investments to tax efficient environments. Specifically, I hold several Roth and Traditional IRAs which currently hold cash as I am unsure as to what investment product is best for that account type (bonds, stocks, intl. stocks etc). I also believe I made a mistake in investing my 401k contributions in a variety of products instead of focusing on certain ones given their efficiency within a 401k tax deferred environment.

Thanks in advance for your comments!



Tax Filing Status: Married filing jointly
Tax Rate: 22% Federal, 9.3% State (marginal rates)
State of Residence: CA
Age: 30/31
Desired Asset allocation: 60% stocks / 40% bonds (open to suggestions)
Desired International allocation: 14% of stocks (open to suggestions)
Portfolio size: Mid six figures
Given your ages and time to retirement, your asset allocation is considered to be conservative, though acceptable. Other acceptable allocations are 70/30 or 80/20 on the more aggressive side. You have an investment horizon that could last 60-70 years (work years into retirement). Vanguard recommends holding at least 20-40% in international equities, I split the difference and used 30% allocation down below for your 401k.
Current retirement assets

Taxable
43.56% Cash
2.69% Vanguard Small-Cap Index Fund (VB) (.06%)

His 401k
2.76% American Europacific funds (RERGX) (.50%)
4.19% Fidelity growth (FDGRX) (.77%)
3.26% Alphabet Inc. Class A (GOOGL)
.88% Autodesk Inc. (ADSK)
.70% Adobe Systems Inc. (ADBE)
.49% Visa Inc. Cl A Shrs (V)
.41% SPDR S&P 500 ETF TRUST (SPY) (.09%)
.15% General Motors Corp Common shares (GM)
.32% Wells Fargo & Co (WFC)
.15% Intl business Machines Corp (IBM)
.33% Fidelity Biotechnology Portfolio (FBIOX) (.75%)
2.16% Vanguard Growth ETF (VUG) (.06%)
4.67% Vanguard Value ETF (VTV) (.06%)
1.38% Vanguard Total Bond MKT (BND) (.05%)
1.44% Vanguard Short term Bond (BSV) (.07%)
Company match 50% of first 6%
Recommend you divest/liquidate all individual equity holdings in 401K.
The reason why you should not hold individual equities is due to concentration risk -
you are essentially holding 7 lottery tickets, do you really want to bet your retirement money on GM? or Wells Fargo? Use low cost total market based indexes to capture your fair share of returns. Consider using these funds instead:

Vanguard Employee Benefit Index VEBCT (.01%) 30% --->this is an S&P 500 fund
Vanguard Extended Market Index VEMPX (.05%) 12% ----> represents mid/small caps
Vanguard Developed Mrkts Instl VTMNX (.06%) 18% -----> international equities
Vanguard Total Bond Mkt Index VBMPX (.03%) 40% ------> bonds

Or: you can simply select one of the low cost Vanguard Retirement Trust 20XX funds that most closely approximates the amount of equities/fixed income as noted in your desired asset allocation of 60/40.


His Roth IRA
3.52% Vanguard High Dividend Yield ETF (VYM) (.08%)
Any asset held in a ROTH IRA will grow tax-free. If you are holding VYM with the expectation that you will receive some added benefit because it's in a ROTH,
you won't. You will simply earn the returns of the fund, any withdrawals at retirement will be tax-free based on current law. You could choose to own the Total Stock Market Index in that account, the gains/earnings will still be tax-free.


Her 401K
3.02% Vanguard LifeStrategy Growth Inv (VASGX) (.15%)
No company match

Her Traditional IRA
6.56% IRA currently only holds cash
Do you/spouse have any intention for this money? What is the purpose of holding cash in an account that is designated for retirement? Cash earns nothing.
Her Roth IRA
.96% IRA currently only holds cash
Same question - purpose of holding cash?
Her Roth IRA
1.09% Currently in 5 yr CD

Her certificates of deposit
3.08% 5 yr CD
3.07% 5 yr CD
3.07% 5 yr CD
3.06% 5 yr CD
1.53% 5 yr CD
1.50% 5 yr CD

Contributions

New annual Contributions
Not sure what this refers to...Should I note my 401k contribution rate here?
Usually refers to a dollar figure - ex. $5,000.

Available funds
Funds available in her 401(k)
Asset Allocation
Vanguard LifeStrategy Growth Inv VASGX

Questions:

3. Is it foolish to allocate a fund across multiple locations? For example if I already own VTV in my 401k but have cash to purchase more in my taxable account is that ok? I feel like it would be easier to have one fund in one location, but in this case I have cash that I would like to invest but I can only invest that into my taxable account.
No, it's not foolish, however as noted above recommend you consolidate your retirement assets into broad based index funds or a target retirement fund which holds those same broad based index funds. Hold etf in taxable.
Grt2bOutdoors thank you for providing me with some great feedback about my portfolio. I have one question about how best to invest the cash that I currently have. Since I can't place that money in my 401k and both Roth and Traditional IRA's have annual limits. Is investing the cash in a taxable account the only way to proceed? By placing that cash in a taxable account won't I experience taxes on the gains later?

Frank Grimes
Posts: 109
Joined: Tue Mar 07, 2017 10:54 am

Re: Brand new investor- Portfolio critique

Post by Frank Grimes » Thu Jan 04, 2018 1:50 pm

If you're looking for other tax advantaged space - do you have a high deductible health plan with an HSA? If so you can contribute up to the max there as well.

Once you've used up all your tax advantaged space and put your least tax efficient investments there in accordance with your investment allocation goals, put your most tax efficient investments in the taxable account.

graphite01
Posts: 12
Joined: Fri May 12, 2017 6:42 pm

Re: Brand new investor- Portfolio critique

Post by graphite01 » Fri Jan 12, 2018 9:58 pm

I was digging into the wiki and came across this page about asset allocation across multiple accounts that was very helpful (https://www.bogleheads.org/wiki/Asset_a ... e_accounts). I am in the process of constructing a three fund portfolio using the funds available above across multiple accounts. Right now I am working through modeling the allocation in excel and I am running into the fact that I do not have enough within each account to complete the first asset's allocation fully within say my 401K...so I move onto the next account and select the fund with the lowest expense ratio and so on. This leads me to being in the position of duplicating the same fund across multiple accounts to try and reach its desired allocation with the majority of the money to be invested sitting in a taxable environment. So does this mean I just fill up the remainder of the outstanding allocations within the taxable environment since I currently do not have enough in my 401K/IRAs?

For instance if I have 80% of my funds in taxable and 20% in my 401k do I just mentally prepare myself for the capital gains taxes that will occur way way in the future since the majority of my retirement assets are in a taxable account? Is the idea that over time as I contribute more to my 401k that it will overshadow the taxable account?

Below is my desired asset allocation:
80/20 stock bond allocation, 15% intl. stocks, replicating total stock market with 80/20 between S&P and small/mid cap<br/>

Taxable
(Intl.) VTMNX Vanguard Developed Mrkts Instl: 15%

His 401k
(S&P) VEBCT Vanguard Employee Benefit Index: 52%
(Small/Mid) VEMPX Vanguard Extended Market Index: 13%
VBMPX Vanguard Total Bond Mkt Index: 20%

graphite01
Posts: 12
Joined: Fri May 12, 2017 6:42 pm

Re: Brand new investor- Portfolio critique

Post by graphite01 » Wed Jan 17, 2018 5:46 pm

graphite01 wrote:
Fri Jan 12, 2018 9:58 pm
I was digging into the wiki and came across this page about asset allocation across multiple accounts that was very helpful (https://www.bogleheads.org/wiki/Asset_a ... e_accounts). I am in the process of constructing a three fund portfolio using the funds available above across multiple accounts. Right now I am working through modeling the allocation in excel and I am running into the fact that I do not have enough within each account to complete the first asset's allocation fully within say my 401K...so I move onto the next account and select the fund with the lowest expense ratio and so on. This leads me to being in the position of duplicating the same fund across multiple accounts to try and reach its desired allocation with the majority of the money to be invested sitting in a taxable environment. So does this mean I just fill up the remainder of the outstanding allocations within the taxable environment since I currently do not have enough in my 401K/IRAs?

For instance if I have 80% of my funds in taxable and 20% in my 401k do I just mentally prepare myself for the capital gains taxes that will occur way way in the future since the majority of my retirement assets are in a taxable account? Is the idea that over time as I contribute more to my 401k that it will overshadow the taxable account?

Below is my desired asset allocation:
80/20 stock bond allocation, 15% intl. stocks, replicating total stock market with 80/20 between S&P and small/mid cap<br/>

Taxable
(Intl.) VTMNX Vanguard Developed Mrkts Instl: 15%

His 401k
(S&P) VEBCT Vanguard Employee Benefit Index: 52%
(Small/Mid) VEMPX Vanguard Extended Market Index: 13%
VBMPX Vanguard Total Bond Mkt Index: 20%
Any thoughts regarding the above???

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